Even with all that has happened, it didn’t become clear that Arizona residents are subjects of a new-technology experiment until March 18.
That was the night when an Uber self-driving vehicle struck and killed Elaine Herzberg as she pushed her bike across a Tempe street.
It’s no coincidence that Uber and other companies have been testing autonomous vehicles in Arizona. It’s Gov. Doug Ducey’s economic policy to remove regulatory barriers and invite cutting-edge technology companies of all sorts to settle in Arizona.
The hoped-for effect is that Arizona will boom as a hub for a variety of technologies. Vector Space Systems, the Tucson-based rocket and satellite company, is one example the administration cites. It is also developing a satellite-based crypytocurrency. Another is TuSimple, a Chinese company developing self-driving commercial trucks in Tucson.
The problem: Ducey’s broad deregulation is turning Arizona residents into unwitting subjects of technological experiments.
Soon, that experiment will open us up as a test market for new financial technologies. A new state law has turned Arizona into a “fintech sandbox” — a place where companies can apply to experiment with their new currencies, lending and payment technologies. Think Bitcoin or Venmo.
Arizonans will be the subjects of the experiment, and, hopefully, the beneficiaries.
In an email, Susan Marie, the spokeswoman for the Arizona Commerce Authority, explained the state’s approach this way :
“While we’re not trying to ‘be the next Silicon Valley,’ the history of that place and also of places like Cambridge, for example, has a lot to teach us why creating an environment that encourages innovation is good for the economy and also good for solving challenges a growing population will face in areas like connectivity, health care, water resource management, agriculture, transportation, etc. The history of those places also tells us that this is a long-game strategy — in those places it took 20 to 30 years to see meaningful success.”
So that’s the idea — attract new companies to Arizona, give them a place to grow, and enjoy prosperity as the benefits gradually spread. The trick, though, is to ensure Arizonans, as residents and consumers, aren’t victimized in the process. And I’m not sure this state, with the wide-open influence of special interests, is up to striking the right balance.
The most stunning example, until Herzberg’s death, was the Theranos experiment.
As I’ve written previously, I happened to be in the room in March 2015 when the founder of the blood-testing company Theranos swept into Arizona’s capitol and dazzled then-House Speaker David Gowan and other legislative leaders. It turned out to be an excellent lesson in how not to welcome new technologies into Arizona.
The Legislature easily passed a bill allowing Theranos to begin offering its allegedly revolutionary blood-testing to consumers without a doctor’s order. The technology was supposed to be able to test you for a host of conditions using just a drop of blood, rather than vials. The problem was, it didn’t work.
But we didn’t find that out until after Theranos had set up blood-testing operations in Walgreens stores, especially in the Phoenix area. In December, as a result of a consumer fraud lawsuit by the Arizona Attorney General’s Office, the company sent out 76,000 refunds to customers totaling $4.6 million. The SEC settled a fraud case against the company last month, and a federal criminal investigation is ongoing.
Our elected officials really blew that one. And it appears that, with Uber, we did not keep adequate track of the experiments that Uber and other companies have been running on our roads. When the governor announced the regulatory permission for Uber and others to test these vehicles on our roads, he set up a “Self-Driving Vehicle Oversight Committee.” It met only once, online records say, in August 2016.
So why should we trust the next big experiment being run on Arizona’s residents, the financial technology sandbox? We shouldn’t, of course, even though there are safeguards in place that distinguish the sandbox from the open roads and pharmacy labs that Uber and Theranos exploited.
“There’s a lot of talk about what happened with Uber,” Marie of the Arizona Commerce Authority told me in an interview. “We all need to be careful not to overlearn the lessons of previous failures and impose them on new technologies. The idea of the sandbox is that it’s in a box, it can be tested.”
The new law establishes the Attorney General’s Office as the gatekeeper that will receive applications, approve them, and keep track of the experimental technologies, which may include cryptocurrencies, new ways to transmit money and new ways to lend.
It also limits the number of people who may become customers to 10,000 per product or service and caps individual consumer loans at $15,000 per loan, $50,000 per person in aggregate loans. Customers must also be told of the experimental nature of the product or service, and each project is limited to two years, unless the company applies for and receives a one-year extension.
“This is not Theranos or Uber,”’ Attorney General’s Office spokesman Ryan Anderson said. “Those were examples where you had government coming in and picking winners and losers in the marketplace with respect to lowering regulations and allowing them in.”
“We’re setting up a regulatory structure that is open to all,” he added. “It’s not laissez faire anarchy.”
And yet there are worrying signs about the sorts of companies that may try to exploit the sandbox, said Kelly Griffith of the Tucson-based Center for Economic Integrity. She worked on the bill and was able, with an alliance of consumer groups, to win some changes. And yet, she pointed out, title loan companies are still specifically included in the law.
These are corner-store lenders you see especially in poor neighborhoods, the successors to payday loans, who lend small sums of money at relatively high interest rates using the customer’s vehicle as collateral.
“Title loans are not an innovative financial product,” Griffith said. “It defies my understanding why they would feel compelled to put title lenders in the bill.”
It’s especially curious because the bill specifies that they must follow existing state law. And yet, these are exactly some of the sketchy actors that are likely to try to take advantage of any financial deregulation we offer. Payday lenders and their usurious ilk have never stopped trying to win favorable laws and regulations, even after payday loans were effectively outlawed in 2010.
Separately, last week a Mesa man was convicted of money laundering for doing $164,700 in bitcoin transactions for undercover agents posing as drug traffickers. No doubt he won’t be the last person to try to use innovative technology for criminal purposes.
“I don’t particularly think the AG has any nefarious intentions, but I think there will be unintended consequences,” Griffith said. “We’re going to end up with people getting run over.”
Financially this time, not literally.